Nick Bubb’s Verdict: Next - 'spontaneous' shopping and retail disciplines

The heatwave in July certainly felt like spontaneous combustion at times, but Next think that consumers are becoming more “spontaneous”.

Next chief executive and retail guru Simon Wolfson can always be relied upon to say something interesting about the consumer outlook and the word of the day is “spontaneous”. The noble Lord said today that “it would appear that consumers are becoming more spontaneous in their purchasing habits. As a result, weekly sales are more affected by short term events such as a change in the weather, the timing of Bank Holidays, school holidays, etc”.

It is not, on the face of it, clear why this volatility in spending is so very different from before, as shifts in the retail calendar have always shifted the patterns of consumer spending around and ‘the weather’ has, of course, always been an important determinant of when consumers are prompted to buy seasonal/outdoor products (as opposed to indoor products).

But Simon Wolfson is right to say that the increasing prevalence of online shopping, as well as longer shop opening hours, gives the consumer more options to be ‘spontaneous’, to react to good or bad weather or to ‘events’ (be it Easter, Mother’s Day, the Olympics, the royal wedding/baby or the onset of back to school time).

And if consumer wallets are tight, because of the pressure on real personal disposable income from persistent price inflation and subdued wage increases/job security, then it makes sense that they will only spend when they either have to or are driven to by an event or a change in the weather. Many retailers have noticed the increasing ‘end of the month’ phenomenon, when hard-pressed consumers splash out a bit after pay day.

The amazing thing is that over the whole of the first half of Next’s financial year, the overall growth in Next brand sales was pretty much what it expected it to be, at 2.3%, but hardly any week was “average”.

In last year’s first half Next’s sales averaged about £60m a week and this year they averaged a bit over £61m a week, but nearly every week was £5m-£10m up or down in sales on last year, so the volatility was striking. A cold and weak March and early April period was replaced by a warmer spell before another slump at the end of May and then a decent June.

Yet the most interesting part of the chart Next published today with the second-quarter trading update, to show the continuing volatility of weekly sales, is the slump in July. Although Next refrains from talking about the heatwave, it is hard to avoid the conclusion that the hot weather, which broadly coincided with the start of the Next summer Sale on July 13, sapped footfall on the high street and out-of-town retail parks, and even undermined online shopping enthusiasm, because July was clearly bad for top-line sales at Next.

But the Next summer Sale also had 20% less stock in it as a result of better than expected full-price sales beforehand, so although the overall sales outcome in July was lower than expected the achieved gross margin was better than expected because of lower markdowns.

If ‘the weather always shifts spending patterns’ is an eternal retail truth, then ‘Next always beats profits guidance’ must be another eternal truth. It is a tribute to the consistent strength of Next’s operational management that they managed their way through such a volatile period for sales as the first half of the year with such good control of operating costs, margin and stocks. It seems unlikely that all fashion retailers will have managed things so well.

Another eternal retail truth, however, is ‘never lose your pricing power’. An important aspect of Next’s continuing success - apart from its impressive multichannel and distribution prowess - is that it doesn’t devalue its price integrity by constant discounting. The reason why Next can get customers to pay full-price is that their Sale events, to clear seasonal stock, are quite rare. Which is more than one can say, for example, of yet another Debenhams Sale…